Chicken-pricing index ruffles investors

JacobBunge

U.S. chicken-company executives will get another chance in coming days to smooth investors' ruffled feathers over questions about poultry pricing that have pressured share prices.

Mississippi-based Sanderson Farms Inc., the third-largest U.S. poultry processor by volume, will be the next meat company to field questions around a troubled pricing index and the retail chicken market, which makes up less than one-third of the Mississippi-based company's sales. The company is scheduled to report earnings Dec. 15.

"We look forward to laying out our perspective of the importance of all the market-pricing mechanisms and explaining how they work, and hopefully putting people's minds at ease," said Mike Cockrell, Sanderson's chief financial officer.

A price index compiled by the Georgia Department of Agriculture and used to price chicken sold to grocery stores has drawn scrutiny for incorporating data supplied by chicken companies but not purchasers or other market participants. Over the last 18 months the index has steadily ranged above other, similar chicken-pricing benchmarks that verify prices with buyers and sellers.

Price-index intricacies sound wonky, but there is serious scratch in poultry. U.S. consumers this year will eat 90 pounds of chicken on average, nearly twice the totals for beef and pork, according to the National Chicken Council. Shoppers spend about $90 billion annually on chicken.

The discrepancy between the Georgia index and others has raised questions of whether some consumers have paid too much. The U.S. Department of Agriculture and the Florida Attorney General's office have both pressed the Georgia Department of Agriculture for more information about how it calculates the benchmark.

Amid the scrutiny, the Georgia Department of Agriculture has stopped publishing the index. A spokeswoman for the Georgia Agriculture Department said at least half of the nine companies that routinely contribute data have yet to sign documents affirming the accuracy of those prices. Tyson Foods Inc., Pilgrim's Pride Corp. and Sanderson Farms have signed them, company officials said.

Chicken companies have played down the Georgia index's significance. "This is really a tempest in a teapot for Tyson Foods," said Tom Hayes, Tyson's president and incoming chief executive, after the first question posed at an investor event last Wednesday focused on the so-called Georgia Dock.

Tyson, the biggest U.S. poultry processor in terms of volume, says only about 4% of its chicken sales are priced off the benchmark. Colorado-based rival Pilgrim's Pride has offered a similar estimate. But Mr. Hayes said that Tyson takes the suggestion of overpricing "personally."

"We view that as an attack on our integrity as a company," Mr. Hayes said. Tyson executives have said the Arkansas company would be unaffected if the Georgia index were mothballed.

A lawsuit alleging collusion among poultry processors, filed in September by a food-service distributor and chicken consumers, was updated last month with a greater focus on the Georgia index. Chicken processors say they will contest the charges.

Chicken companies say retailers that have incorporated the Georgia Dock into their purchasing deals haven't widely fled the index. Sales of chicken in grocery stores have strengthened in recent years, while demand has fluctuated for the larger chickens that are sold to restaurants and food-service operations, officials say.

Still, investor concerns have weighed on the companies' shares. Tyson's stock has dropped 13% since October, while Pilgrim's shares have declined 12%. Sanderson's has slipped 1%. The S&P 500 stock index has climbed 6% over that time.

"Investors don't like uncertainty, and the lawsuit and Georgia Dock controversy are both reducing visibility into the chicken sector," said Farha Aslam, an analyst with Stephens Inc.

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